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Air Canada launches share buyback program

Air Canada launched its first share buyback program Wednesday since it went public in 2006 in an effort to drive up the value of its shares, which have been dragged down by the uncertainty in the economy, muted growth prospects, and ongoing labour talks

Air Canada launched its first share buyback program Wednesday since it went public in 2006 in an effort to drive up the value of its shares, which have been dragged down by the uncertainty in the economy, muted growth prospects, and ongoing labour talks.

The country’s largest carrier said it would purchase up to 10% of its outstanding common shares, or roughly 24.7 million shares, for cancellation between Dec. 12, 2011, and Dec. 12, 2012. Air Canada had nearly $2.2-billion in cash and other short-term investments on hand at the end of the third quarter, or roughly 19% of its trailing 12-month operating revenue.

“The board of directors of Air Canada believes that the purchase by Air Canada of its shares represents an appropriate use of funds to increase shareholder value,” it said.

The airline’s shares have fallen nearly 70% since the start of the year as the economy soured alongside its acrimonious labour talks. The company’s shares closed at $1.07 on the Toronto Stock Exchange Wednesday, up .01¢ after the buyback was announced.

Still, that is near historic lows and well below the company’s $21 initial public offering price in November 2006.

Earlier this week, Calin Rovinescu, Air Canada chief executive, compared the airline’s current situation with AMR Corp., the parent company of American Airlines, which filed for bankruptcy protection in the U.S. last week.

“In order for things to stay the same, everything must change,” he said in the memo to employees. “That applies to our industry and to our company too, as the troubles at American Airlines painfully remind us.”

He has focused efforts to improve the company’s costs by achieving its goal of $530-million in revenue and cost improvements. But is also eyeing the launch of a low-cost carrier with lower wages and benefits for its employees.

The LCC plan, however, has come up against stiff opposition from the airline’s pilots, who rejected a tentative agreement this year, in part, because of concern over a new subsidiary airline.

Air Canada has returned to the bargaining table with the pilots. But a new labour pact is not expected before the new year. Similar talks with the company’s machinists and ground handlers union are ongoing and not expected to be resolved before early 2012.

The last time Air Canada held a buyback program was in December 1999 amidst the threat of a takeover by Onex Corp., the company said.